AUD/JPY Price Forecast: Strengthens above 108.50, RSI signals overbought conditions

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The AUD/JPY cross gathers strength to near 108.55 during the early European session on Friday. The Japanese Yen weakens against the Australian Dollar (AUD) after the Bank of Japan (BoJ) interest rate decision.

AUD/JPY gains ground to around 108.55 in Friday’s early European session.
The cross keeps bullish vibe, but further consolidation cannot be ruled out in the near term amid overbought RSI momentum.
A pullback would target the initial support level at 105.85.

As widely expected, the BoJ decided to leave its benchmark rate unchanged at 0.75% following the conclusion of the two-day monetary policy review meeting on Friday. That leaves borrowing costs at the highest level in three decades.

Board member Hajime Takata also proposed hiking rates for the second consecutive meeting, which found no other voices in support but highlighted the hawkish momentum within the Japanese central bank.

According to the BoJ’s quarterly outlook report, the BoJ raised its growth forecast for fiscal 2025 and 2026 and maintained its view that the economy will remain on course for a moderate recovery.

Technical Analysis:

In the daily chart, AUD/JPY holds above the 100-day EMA at 102.07, underscoring a firm bullish bias. The positive slope supports continuation while the distance from the average warns of mean-reversion risk. Price has pushed above the upper Bollinger Band at 108.10, signaling stretched conditions amid strong upside pressure. The bands continue to widen, reflecting rising volatility and an accelerating trend.

RSI at 77.21 sits in overbought territory, confirming robust momentum but raising the risk of a cooling phase. A pullback would target the Bollinger middle band at 105.85, with the lower band near 103.62 offering additional support if momentum fades. On the topside, maintaining closes above the upper band would keep the path of least resistance higher, though near-term consolidation could unfold before an extension.

(The technical analysis of this story was written with the help of an AI tool.)

Bank of Japan FAQs

What is the Bank of Japan?

The Bank of Japan (BoJ) is the Japanese central bank, which sets monetary policy in the country. Its mandate is to issue banknotes and carry out currency and monetary control to ensure price stability, which means an inflation target of around 2%.

What has been the Bank of Japan’s policy?

The Bank of Japan embarked in an ultra-loose monetary policy in 2013 in order to stimulate the economy and fuel inflation amid a low-inflationary environment. The bank’s policy is based on Quantitative and Qualitative Easing (QQE), or printing notes to buy assets such as government or corporate bonds to provide liquidity. In 2016, the bank doubled down on its strategy and further loosened policy by first introducing negative interest rates and then directly controlling the yield of its 10-year government bonds. In March 2024, the BoJ lifted interest rates, effectively retreating from the ultra-loose monetary policy stance.

How do Bank of Japan’s decisions influence the Japanese Yen?

The Bank’s massive stimulus caused the Yen to depreciate against its main currency peers. This process exacerbated in 2022 and 2023 due to an increasing policy divergence between the Bank of Japan and other main central banks, which opted to increase interest rates sharply to fight decades-high levels of inflation. The BoJ’s policy led to a widening differential with other currencies, dragging down the value of the Yen. This trend partly reversed in 2024, when the BoJ decided to abandon its ultra-loose policy stance.

Why did the Bank of Japan decide to start unwinding its ultra-loose policy?

A weaker Yen and the spike in global energy prices led to an increase in Japanese inflation, which exceeded the BoJ’s 2% target. The prospect of rising salaries in the country – a key element fuelling inflation – also contributed to the move.